Every year, you build a contribution room—either 18% of your income from the year before or the annual cap (2023’s is $30,780; 2024 will increase to $31,560), whichever is smaller. The CRA includes your RRSP limit every year in your Notice of Assessment. Any room you don’t take advantage of carries forward indefinitely, so even if you can’t save it all now, you can catch up later.

If your employer has a group RRSP, any money you receive from it counts against your cap. It’s the same for registered pension plans and deferred profit-sharing plans, although contributions count against your limit the year after they are made in those cases. Interest, capital gains, and dividends don’t affect contribution space.

It’s not the end of the world, but it will cost you. The CRA gives you a lifetime buffer of $2,000. Once you exceed it, you’ll pay a penalty of 1% of the excess amount each month. In case that doesn’t scare you straight, you’ll also have to fill out a T1-OVP form, which nobody wants to do.

RRSPs are a lot more flexible than people realize. You can take your money out at any time and for any reason. But unless that withdrawal is to purchase your first home (using the Home Buyers’ Plan) or go back to school (with the Lifelong Learning Plan), you will be taxed on it at your marginal tax rate at the time of withdrawal, like regular income.

Although it won’t reduce your taxes this year, you could open a TFSA to allow your investments to start growing tax-free. Any resident of Canada who has a valid SIN and who is at least 18 years of age is eligible to open one. Once you do file taxes, you’ll know exactly how much RRSP contribution space you have, and you’ll be able to open and contribute to an RRSP at that point.

Spousal RRSPs are a special type of RRSP that can be helpful when one spouse has a meaningfully higher income than the other. That’s because, in a graduated tax system, each person should have $40,000 of income rather than $65,000 and the other $15,000. With a spousal RRSP, couples can more evenly contribute to their accounts so that one person doesn’t have a substantially larger RRSP in retirement and, therefore, ends up in a higher tax bracket when they withdraw their money. The lower-income-earning spouse owns the spousal RRSP, which is contributed to by the higher-income-earning spouse and counts against the contributing spouse’s RRSP contribution room.

Not sure if a spousal RRSP is right for you? We made a flowchart to help. See below.

Yes, you can. Anything you take out when you are not working would likely be taxed at a much lower rate, assuming you have no other sources of income. Just remember, you don’t regain that contribution room like you would with a TFSA.